The Palestinian Authority employs some 165,000 people, and the UN estimates that a quarter of the Palestinian population relies on government salaries.

George al-Abed, governor of the central bank, said it would have to look at the fact that Hamas is currently blacklisted by the US and European Union as a terrorist organisation, and that under international law it is illegal to finance such groups.

"We would lay ourselves bare to a boycott if we took decisions contrary to international law on money laundering and financing terrorism," said Mr al-Abed.

He also added that Palestinian fiscal law prevents borrowing from the central bank to finance budget deficits.

World Bank solution?

Hamas has recently had to resort to paying workers directly with funds donated by the Arab League.

The Palestinian Authority's monthly wage bill runs to about $116m.

French President Jacques Chirac has meanwhile argued for the creation of a World Bank fund to pay Palestinian Authority workers.

The proposal has been welcomed by Palestinian leader Mahmoud Abbas of the Fatah faction. Hamas has said it would consider the idea.